Considering the past few years that we have written about India, we will come back to the changes in the laws in this country again this year, please read this article first and then come back here to know the conditions of India in the past.
India must expand its legislative reach to encompass private sector entities. As the private sector significantly impacts both the livelihood and well-being of our nation's people, extending regulatory measures is long overdue. Many countries have already implemented such policies targeting private entities, providing India with ample models to draw inspiration from. By adapting these frameworks to suit its unique socio-economic and political landscape, India can effectively address its prevailing challenges.
As of now, there are no dedicated laws addressing whistleblower protection for employees of private, unlisted companies, or unincorporated entities. Employers have the autonomy to create and implement their whistleblower policies, aimed at fostering a culture of reporting without fear of reprisal, discrimination, or any form of disadvantage, whether economic or otherwise. Consequently, within private establishments, the approach to whistleblowing largely relies on discretionary measures and internal policies.
As per the Companies Act, the following types of companies are required to establish a vigil mechanism and adopt a “whistleblower policy” for directors, employees, stakeholders, and any other individuals (such as auditors) to report concerns about unethical behaviour, actual or suspected fraud or violation of the company’s code of conduct or ethics policy:
For companies, the authorities that are responsible for overseeing the enforcement of whistleblowing legislation depend on which of the following two categories the company falls under:
In the case of other companies, the Board of Directors is required to nominate a director to play the role of an audit committee for the vigil mechanism. The other directors and employees may report their concerns to such a director (Rule 7(3) of the Companies Rules).
The Chairman & Managing Director of the Company will include any person(s) to whom he may delegate any of his powers as the Competent Authority under this policy from time to time. In case the subject person is the Chairman & Managing Director, then the Chairman and Audit Committee will be the Competent Authority.
The SEBI LODR Regulations establish guidelines for ensuring robust corporate governance and transparent disclosures among listed companies in India. As per Regulation 22(2) of these regulations, listed companies are required to establish a comprehensive vigil mechanism or whistleblower policy.
This mechanism enables stakeholders, including individual employees and their representative bodies, to report concerns regarding illegal or unethical practices without fear of reprisal.
Additionally, the vigil mechanism must include provisions to safeguard individuals, such as directors or employees, who utilize the mechanism from any form of victimization.
Under the Companies Act, failure to adopt and implement a whistleblowing procedure, as outlined in the specific whistleblowing legislation section above, can result in penalties. The company may face a fine of INR 500,000 (approximately $6,009), while every responsible officer may be fined INR 100,000 (approximately $1,202) (Section 178(8) of the Act).
Section 16 of the WBP Act states that any individual who negligently or with malicious intent discloses the identity of a complainant can face imprisonment for up to three years and a fine of up to INR 50,000 (approximately $600).
The efforts of whistleblowers have exposed numerous governmental deficiencies and wrongdoings. However, for a considerable period, India lacked statutory legislation providing these individuals with safe harbour and protection from powerful government entities.
Existing whistleblower laws suffer from significant limitations and narrow scope. Importantly, no laws promote whistleblowing or safeguard whistleblowers within private institutions. While various disclosure obligations exist for individuals and entities like banks and listed companies, aimed at detecting fraud and misconduct early on, India has yet to implement comprehensive laws to enhance whistleblower protection across all sectors of the economy.
Establishing secure channels or mechanisms that enable whistleblowers to report without fear of retaliation or victimization remains an unaddressed need.